Tuesday, 3 June 2008

Government intervention is justified when the market is broken

Some days I feel like I am going mad. Other days I stray into conspiracy theory, wandering if someone is manipulating the invisible hand intentionally to slowly starve hundreds of thousands of people. And when I listen to the general-secretary of the UN proclaiming trust in the market system, I could cry.

If it's not yet clear (where have you been?), yes, I'm talking about agricultural subsidies. Those horrible tariff-barriers that are held up as the reason developing world produce can't compete in developed-world markets. But there is another side to this.

In the developing world, farming is hard. There is a general misconception that farming is a lucrative business. This is partly based on the perception that farmers work in the black. The reality is that farming is a industry run largely on credit. A few lucky farmers one their farms entirely. Many are owned by a small group of ridiculously wealthy investors. The rest are owned by the bank.

Which in turn, means that interest rates have a dramatic impact on farmers. Similarly, farming, as any other primary industry (like forrestry or mining) is heavily dependent on basic inputs like fuel and electricity and those rising costs.

So farming gets more expensive. Added to this is pressure from a supermarket system that uses economies of scale to force down the prices farmers can get for their produce and thereby increase their profits.

The result? People stop farming. Market-fundamentalists will smugly tell you that this is how the system is supposed to work and over time it is self-correcting - eventually food scarcity will push prices up and attract more efficient farmers to the business and the system will bring supply and demand into dynamic balance where food prices more precisely reflect production costs and demand.

Isn't it nice to know there is such a pretty little system that they can all explain so beautifully?

So what's the problem? The problem is that while the market is correcting itself and the economist are making lovely money from accurately predicting it, people die.

Pushing up food prices, or irresponsibly allowing them to rise, is not the same as pushing up the prices of luxury clothes. People cannot live without food.

The argument is simple. When farming becomes more expensive, especially with the threat of farm attacks, rampant stock and crop theft and the disappearance, not very long ago, of protection and subsidies, farmers stop farming. In SA, that generally means farms turn to game. Which means less food is produced. Which means people can't eat. Which means people die.

So, therefore, trusting the market means people die. As far as I'm concerned, that is a very clear, very obvious market failure. And I'm not sure how anyone, anywhere can think that doesn't justify government intervention.

I realise interventions intended to make farming more attractive won't solve the problem immediately. We'll still need emergency relief to stop massive loss of life now. But it will mean that next near we might be able to eat.

I'm not a fan of market-fanatisism but even if you are, surely you can see that there is a case for investing in the survival of thousands of people? Surely you can see the logic? As awkward a rallying cry as it is, bring back government intervention in farming, for the sake of the starving masses, for the sake of your next plate of food!

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